The combination could set off a wave of political instability, as people already frustrated with government leaders are pushed over the edge by rising costs.
“It’s extremely worrying,” said Rabah Arezki, a senior fellow at the Harvard Kennedy School of Government and a former chief economist at the African Development Bank.
“I don’t think people have felt the full impact of rising prices yet,” said Hamish Kinnear, a Middle East and North Africa analyst at Verisk Maplecroft, a global risk consultancy.
Lessons from the Arab Spring
Circumstances in each country differed, but the overall picture was clear. Rising wheat prices were a major part of the problem.
The situation now is even worse. than it was then. World food prices have just hit a new record high. The FAO Food Price Index released on Friday came in at 159.3 in March, up nearly 13% from February. The war in Ukraine, a major exporter of wheat, corn and vegetable oils, as well as tough sanctions on Russia, a key producer of wheat and fertilizer, are expected to cause further price increases in the coming months.
Adding to the pain is rising energy prices. World oil prices are almost 60% higher than a year ago. The cost of coal and natural gas has also skyrocketed.
Many governments are struggling to protect their citizens, but fragile economies that borrowed heavily to weather the 2008 financial crisis and pandemic are the most vulnerable. As growth slows, hurting their currencies and making it harder to keep up with debt payments, subsidies for food and fuel will be difficult to maintain, especially if prices continue to rise.
“Now we are in a situation where countries are in debt,” Arezki said. “As a result, they don’t have any buffers to try to contain the tensions that will come from such high prices.”
Where tensions are boiling
Asia: In Sri Lanka, an island nation of 22 million, an economic and political crisis is already brewing, with protesters taking to the streets in defiance of curfews and government ministers resigning en masse.
Coping with high levels of debt and a weak economy that relies on tourism, Sri Lanka was forced to deplete its foreign exchange reserves. That prevented the government from making payments for key imports like energy, creating devastating shortages and forcing people to spend hours queuing for fuel.
Its leaders have also devalued their currency, the Sri Lankan rupee, as they seek a bailout from the International Monetary Fund. But that only made inflation at home worse. In January it reached 14%, almost twice the pace of price increases in the United States.
“The magnitude of the economic chaos has united the opposition to Imran Khan,” said Verisk Maplecroft’s Kinnear.
Middle East and Africa: Experts are also watching for signs of political distress in other Middle Eastern countries that rely heavily on food imports from the Black Sea region and often provide generous subsidies to the public.
With about 70% of the world’s poor living in Africa, the continent will also be “highly exposed” to rising food and energy prices, Arezki said.
Droughts and conflict in countries including Ethiopia, Somalia, South Sudan and Burkina Faso have created a food security crisis for more than a quarter of the continent’s population, the International Committee of the Red Cross said this week. The situation risks getting worse in the coming months, he continued.
Political instability has already been building up in parts of the continent. A series of coups have taken place in West and Central Africa since the beginning of 2021.
Europe: Even countries with more developed economies, which have stronger protections to protect citizens from painful price increases, will not have the tools to fully cushion the blow.
— Jessie Yeung, Rhea Mogul and Sophia Saifi contributed reporting.